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Condo-project financing taking longer than expected, says Extell

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Bloomberg

New York luxury-condo builder Extell Development Co. says it’s taking longer than expected to obtain construction financing for its One Manhattan Square project as lenders pull back from the market.
Extell had anticipated getting a construction loan for the downtown project by the beginning of June, as a condition of closing a separate financing deal with RXR Realty LLC, Gary Barnett, president of Extell, said in an interview. Completion of the $463.2 million transaction with RXR, which would form a joint venture for One Manhattan Square and two rental buildings, has now been extended to June 30, Barnett said.
“We have to get the financing in place by June 30, and we expect we’ll be able to do that,” Barnett said by phone. “We’ve had to reduce the amount we’re looking for and we’ve had to increase the rate that we’re willing to pay.”
Barnett spoke after a real estate analyst at Israel Brokerage & Investments Ltd. published a report saying it was unlikely the builder would find financing by early June, and that the company’s shekel-denominated bonds would suffer as a result. Extell — developer of Midtown’s One57 skyscraper, where a penthouse was purchased for $100.5 million — sells debt in Israel tied to the performance of some of its projects in New York.
Extell “doesn’t have enough completed projects that generate cash flow, and secondly, it’s in the midst of development projects that require a lot of capital investment,” IBI analyst Yaniv Saylan wrote on May 19 note. “Because of uncertainty over the ability to obtain financing and the nearing of June, we recommend reducing exposure to the company’s bonds.”
Extell’s 6% notes tumbled to a record-low 73 agorot on the shekel that day, pushing the yield up to 14.78%.

Market Demand
Barnett said the firm is talking with several financial institutions and that One Manhattan Square, which is offering condos for less than $3 million, would make a “great loan,” because demand is strong for homes priced at that level.
“There’s been a definite pullback in financing in the market, particularly for construction and particularly for condo construction,” he said. “The regulators are calling the banks saying ‘Did you read the headlines? The market is softening.”‘
Extell is among developers aiming at a lower price point with their latest projects after a four-year construction boom that crowded the market with choices for only the wealthiest buyers.
Demand for high-end homes has cooled, with contracts to buy Manhattan homes for at least $4 million tumbling 29 percent in the first quarter from a year earlier, data from Olshan Realty Inc. show.

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